Sony is betting that a cheaper price tag will help it triumph over Microsoft in the next video-game console competition. Its $400 PlayStation 4 and Microsoft's $500 Xbox One will both debut this holiday season to battle Nintendo's Wii U, which came out last year and starts around $300.

But last year Sony also placed a longer-term, $380 million bet on Aliso Viejo cloud gaming company Gaikai. Some of the first benefits of that purchase should show up in 2014, when the company starts streaming a library of games directly and instantly over the Internet, bypassing long download times.

Under Sony, Gaikai has increased staffing to more than 100 people from about 60, Gaikai CEO David Perry told the Register at the Electronic Entertainment Expo, or E3, in Los Angeles this week. And it's planning to add 20 per month, he said. More than 25 open positions, including datacenter management positions, were listed on the company's website.

"Sony has challenged us to build the most advanced gaming network in the world," said Perry, who sold the company and stayed on to integrate it with Sony's PlayStation plans. "And that's what we're doing."

Each year the gaming industry shows its latest wares at the high-profile E3 conference. But only once in a long while (the last time was 2005) do companies prep for a new console generation, tossing out all the old rules and asking consumers to pony up for a whole new system to play upgraded games. That's what Sony and Microsoft are doing at E3 this week.

Last time around, Sony breathed extra life into the PlayStation 3 by making it a Blu-ray player as well. It was one of the first at the time, allowing gamers to purchase the device for gaming and also get the brains of a high-definition media center.

Meanwhile, Microsoft's Xbox 360 added motion-sensing Kinect technology as a new way to play games and control the television. Microsoft said it sold more than 77 million Xbox 360s through April; Sony said it sold more than 70 million PlayStation 3s worldwide as of November.

Microsoft is positioning its next console to target the center of the home entertainment experience with an improved Kinect and HDMI pass-through functionality. That means a user can run a cable through the Xbox and then effortlessly switch between gaming and live TV – no fiddling with inputs in the back of the TV or even pressing a button on a remote.

Sony, on the other hand, is trying to differentiate itself by pulling from its family of companies for video and music streaming services. With Gaikai, Sony plans to stream entire games over the Internet from a vast library of PlayStation 3 titles. The technology is coming to the PS4, PS3 and, later, the hand-held PS Vita system, according to Sony.

That streaming strategy could give Sony an edge over Microsoft in the area of backward compatibility. Under the hood, both the Xbox One and PlayStation 4 differ significantly from their predecessors, making it impossible to play a disc for a $60 game from the previous generation in the new system. The Wii U, on the other hand, is capable of doing this. (While not streaming games per se, Microsoft plans to offload some processing tasks to the cloud – essentially allowing a game to harness the processing power of both systems in making a virtual world.)

Gaikai's streaming technology runs the game on a system in a giant datacenter in the cloud. Rather than a game install that could take hours or even days to download, Gaikai essentially streams live video from the cloud to your screen. Button presses are sent to the cloud, and you see the results of your actions a split-second later.

The challenge is with making those button presses translate to action on the screen so quickly that gamers can't perceive a lag. That requires extremely reliable and ultra-fast Internet access. If it's 2020 before another console generation comes around, more high-speed networks should be in place to make that feasible.

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